Budget 2018: Changes to employment tax
There were a number of changes affecting employment taxes contained within the 2018 Autumn Budget:
Payments to off-payroll workers (IR35)
The extension of the rules that currently apply to engagers in the public sector are to be extended to the private sector with effect from April 2020. Neither the extension nor the date came as a surprise – both had been widely predicted. However, the announcement that the extension would only affect “medium and large” businesses did not figure in most pre-Budget commentaries. Tellingly, there appears to have been no official statement regarding the criteria that will be used to define “medium” and “large”, though the Chancellor did suggest that an estimated 1.5m businesses would be considered small enough for the provisions not to apply.
The new rules will impose a significant administrative burden on business who use the services of workers provided through personal services companies (PSC). For each engagement the business will be required to consider what the worker’s employment status would have been had the services not been provided through a limited company. Where the answer to that question is “employee” PAYE will have to be applied to the payments made – including paying Employer’s National Insurance.
The HM Treasury briefing note that was released to accompany the budget contained a carefully -worded statement to the effect that a PSC which suddenly finds itself within the scope of IR35, as a result of these changes, will not automatically find itself the subject of an investigation in respect of previous years as a result of these changes and that there will not be any targeted compliance activity aimed specifically at such companies. It should be noted that neither of these reassurances would prevent HMRC opening an IR35 investigation into a PSC for past years, for example, should the company attract the attention of HMRC for non-compliance in other areas of taxation or be selected at random for a more routine review.
The current allowance of £3,000 against Employer National Insurance (NI) bills is to be restricted to businesses with an annual NI liability of below £100,000. The change will come into effect from April 2020 with the liability threshold being based on the 2019-20 tax year.
National Insurance Contributions on Termination Payments – 2020
Certain payments made in connection with the termination of employment are currently taxable only on the amount by which they exceed the (current) limit of £30,000. The Government announced its intention to make these excess payments liable to Employer’s NI back in December 2016. This change was originally due to be introduced from 6 April 2018 but was later postponed until 6 April 2019. The Budget has now announced a further postponement of this charge to April 2020 – though the Government has repeated its commitment to ensuring that the charge applies from that date.
The postponement came to light in the accompanying documents to the Budget rather than as part of the Chancellor’s speech itself. No reason for the further delay has been given, though there has been speculation that the number of Statutory Instruments required to deliver Brexit (c800) will restrict the legislative time available to introduce the charge.
Smaller employers with annual payrolls of less than £3m are not currently liable to pay the Apprenticeship Levy. Such employers have been entitled to Government assistance with apprenticeships by contributing 10% of the cost of such training, the remaining 90% coming from Government funds. The Budget has now announced plans to cut the amount small employers will be required to contribute to 5%. It is believed that this cut will apply only to new apprenticeships commencing after the change comes into effect, a date for which has yet to be announced.
Find out more
This Insight is part of exclusive content being provided by our experts on the Autumn Budget. View our special Autumn Budget 2018 coverage to read more commentary and analysis to help your business. Alternatively, send us an online enquiry to contact one of our business experts or speak to our Senior Employment Tax Manager, Gordon Thrower.